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Digital disruption in Nordic retail banking

Background

Digitization is changing industries across the world and altering the way we as individuals and companies operate. Banking is no exception. While the industry has been on a path towards digitization for a number of years, it is the advent of the mobile device that dramatically accelerated the pace of change. Now millions use apps to handle a majority of their transactions. This has changed the way people bank and the ways banks interact with their customers. In this study we look at the challenges and opportunities emerging for Nordic banks through digitization in banking.

 

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Key Findings

The good news: Nordic banks are running very profitable businesses, especially compared to other European players. The bad news: This has led to a degree of complacency and a lower sense of urgency for Nordic banks to transform in the digital space. As a result, banks in other parts of Europe have started transforming much more rapidly. We see four different business models that banks are adapting globally, depending on their ambition level on digital maturity

Recommendations

Success through digital requires a shift in mindset. And internal capabilities need to be analyzed and addressed to determine readiness for change. Organizational silos that slow decision making need to be eliminated and a common direction has to be agreed upon when embarking on such a transformation journey. As revealed by our study, nearly all of the analyzed Nordic banks are particularly concerned of three potential roadblocks that might limit their ability to digitize their operating model; First, the high level of cultural transformation required from a product and transaction based business model into an agile, customer oriented information technology company. Second, the inability to transform their workforce’s capabilities to meet the constantly evolving needs of customers and technological change. Third, the legacy infrastructure is seen as a key obstacle to accelerate the transformation.

It’s clear from our findings – Banks need to adopt digital. But how should they balance priorities between profitable growth in the short term and the necessary investments for long-term transformation? The challenge should not be underestimated. Most banks expect their value chains to be transformed within the next five years, and nearly all (88 percent) need to rethink their current strategy and business model to compete in the new environment. But less than 40 percent have a clear digital transformation plan in place. To balance short and long-term plans, independently of business model ambition, Nordic banks need to: execute on five levels to capture the benefits of digital business as illustrated by the digital value tree.